HYUNDAI MOTOR CO.: ROAD TO NO.3Can optimism change reality?Becoming The #4 Globally in Terms of Sales Volumes is not an Easy Task. Not even for The Largest Korean Carmaker. But having Achieved that, how fast can it Grab The #3 Spot?Issue Date - 23/06/2011

This summer started on a rather busy note for Land Securities Group. The commercial realty giant has been put in charge of changing the neon light-lit gigantic 1,250 sq. ft.hoarding at Piccadilly Circus (London’s equivalent of Times Square) to an LED screen (which will be ready by October this year). It is a rare event. Those signboards do not change often (the last time it happened was 17 years back!). So what landed Land Securities a new customer willing to pay a massive $3.29 million-a-year for the space? Call it economics – unable to convert failure mystically into cash-flow, Sanyo, the earlier client, was forced to give up the space to a car company, Hyundai Motors. Taking up the billboard is a metaphorical move for the Korean car-maker, and clearly goes beyond catching the attention of the 56 million visitors who flock to Piccadilly, every year.

It’s a move that personifies Hyundai’s attempts to finally break into the top three carmakers of the world. Nobody believed they could do that. Many still don’t. Well, nobody thought the Sanyo billboard would ever be taken over by another company. That’s how metaphorical it can become...

And that’s how a company strives to ensure a perception change within the global audience. For starters, before the turn of the new millennium, the Seoul-based outfit was regarded as just another manufacturer of affordable hatchbacks. No more. Thanks to huge dollars spent on its marketing and advertising strategies, the company has witnessed astounding high growth across many markets over the past two years.

Today, together with its sister company Kia Motors, Hyundai looks all set to break into the top three ranking of the world’s auto market (in sales volume). How soon will that happen? Very, if it continues to grow the way it did in 2010. The company recorded total sales figures of 5.74 million units in CY2010 – a y-o-y growth of 23.97%. It was the highest growth recorded amongst the five largest automakers in the world. While Toyota’s sales rose by 8% (to touch 8.55 million units), GM’s rose by 6% (8.39 million), Volkswagen’s by 13.5% (7.14 million) and Ford’s by 19% (5.31 million). Taking advantage of the streamlining that Ford went through in 2009 & 2010, the Hyundai-Kia combination ran past it to occupy the #4 spot in CY2010. But rising further will be a much bigger challenge.

As per estimates by IHS Global, Hyundai will remain where it is even when 2011 ends. The Korean company, having sold over 2.1 million vehicles during the first four months of 2011, is well on its way to clocking total deliveries of 6.3 million units during CY2011 – a y-o-y rise of 9.76%. On the other hand, Toyota is forecasted to sell 8.6 million units, GM – 8.5 million & VW – 7.5 million. Good news is – when 2011 ends, if all goes well, Hyundai will be much closer to the #3 spot, with the deficit between the Korean and the #3 VW reduced by 1.2 million units.

At the moment however, Hyundai is trying everything to clinch the bronze. If the carmaker stands any chance of making it to the top three by 2015, it has to keep some key markets in mind. And it’s biggest strength is China. As per forecasts by J.D. Power, the Chinese market (the largest auto market) will account for 19 million units (24.8% of the total) cars sold around the world in CY2011. Considering that at present, only 19.16% of its vehicles (1.1 million) are sold in China (CY2010), and that by 2015, China will account for 28% of the 100 million cars sold globally, the company has to seriously mull over upping the ante in the world’s largest car market. At present, the company commands a healthy #2 spot in China (10.4% share), but rising opportunities also call for rising investments. The sooner, the better.

Next, the second largest car market forecasted for CY2011 – US. As per J.D. Power, US will account for 13 million units sold this year (17% of global share). Even in 2015, US will remain the second largest auto market. Therefore, a fast rise in US is the order of the day. And so far, Hyundai has done its Korean founders proud. From under 5% market share as recently as in 2009, the company (as of May 2011) has grabbed a 10.1% share in the US market. Critics claim that despite having crossed over the double-digit market share fence, the Korean is still a laggard, at #5 in the US market, behind GM (share of 20.8%), Ford (18.0%), Chrysler (10.7%) & Toyota (10.2%). But take it this way – to become #3 in CY2011, it has to sell 7,937 more cars/month for the next 7 months. Given that it sold 107,426 units in May 2011, this should be no tough ask.
Hyundai’s efforts to grow in a market like India (which as JD Power will become the #3 by 2015), has also paid rich dividends. If it gets stronger in these very three markets – China, US & India – it will get closer to living its dream & faster than imagined.

Unlike most other manufacturers, Hyundai has almost always got its product strategy right. And given the scenario during 2008-2010, when the market was in a mode of recovery, its portfolio of fuel-efficient hatchbacks and compact sedans pleased the market. It was about getting the right value for your dollar. While speaking to B&E from New York, Jess Caldwell, Director – Industry at Edmunds Inc., says, “Hyundai is in the front today because it really used the recession as an opportunity to take market share.” The small car strategy of Hyundai-Kia that most laughed at for years finally seems to be paying-off. Today, it is the only traditionally “small car-maker” amongst the top five, globally!